Even by the sensationalist standards of Bild, Steffen Naumann’s first presentation of the annual results at Axel Springer, the German tabloid’s parent company, made for shocking reading. Naumann joined the group as CFO in late 2001, just in time to close the books on the first annual loss in company history.
The €200m shortfall spurred a deep restructuring at the Berlin-based group, with Naumann leading a series of cost-cutting measures, from disposals of non-core businesses to staff cuts. Given that a large number of unionised journalists were involved, pushing through these changes was no mean feat.
Since returning to profit in 2002, net income at Axel Springer has averaged nearly 50% compound annual growth. The company launches a new title every month, and has returned to dealmaking in a big way. After a multi-billion euro proposal to take over broadcaster ProSiebenSat.1 was blocked by German competition authorities in late 2006, the group responded by cobbling together €1.5 billion of smaller deals and more than doubling its dividend.
But having weathered the downturn in advertising in 2001, Axel Springer now faces seismic, longer-term changes in its core market as readers migrate online. As the company adapts its business model, Naumann is hoping to make happier headlines in the years ahead.
“The challenge has been to continue operating in a cost-sensitive mode while investing in growth.”- Steffen Naumann
As financial results gradually improve from the unprecedented loss in 2001, has it been difficult to shift from cost-cutting mode to growth mode?
Not at all. We have a lot of creative, entrepreneurial people at the company who want to develop the business and come up with new ideas about how to grow. The challenge has been to continue operating in a cost-sensitive mode while investing in growth.
How are you addressing that challenge?
We put investment decisions under heavy scrutiny and have rigid approval processes for new initiatives. Cost discipline is also a major contributor to management bonuses.
We recently introduced an incentive scheme for German employees linked to profitability, measured as Ebita to sales. The minimum margin is 10%, and for each percentage point that the ratio exceeds this threshold, each employee receives a bonus of €200. In 2006, the Ebita/sales ratio was 15.7%, so each employee received a bonus of €1,000. This increases the sensitivity of all employees to our corporate results, and how they can contribute. In the past, the way bonuses were structured was not as calculable. Now, it’s a very clear concept that everybody can calculate.
Having saved substantial costs, we are now benchmarking various areas of our business to understand where we are world class and where there is still work to do. When we reviewed the administrative functions, for example, we found that some of our services are world class, while there was room for improvement in the accounting area. This is a useful exercise in putting things in perspective. We are continuously identifying new challenges.